US economy grows at 3.3% annual pace in fourth quarter, faster than expected

For those interested in maintaining the purchasing power of the U.S. dollar, I highly recommend this book(free pdf):

Gold: The Monetary Polaris GTMP-ed4-eBook-1.pdf

 

Inflation is the increase of the supply of money beyond the increase in productivity.

I realize that it seems we all wrongly conflate inflation with the overall increase in prices, probably because the overall increase in prices is called "inflation" by the media.

 

False.

"Since the disastrous 1930s, economists and central bankers seem to have lost sight of the fact that there are two kinds of deflation—one malign, the other benign. Malign deflation, the kind that accompanied the Great Depression, is a consequence of shrunken spending, corporate earnings, and payrolls. Strictly speaking, even in this case, it is not so much deflation itself that is harmful as its underlying cause, an inadequate money stock. The hoarding of money, or its actual disappearance (the quantity of money in the U.S. economy actually shrank 35 percent between 1930 and 1933), causes the demand for goods and services to dry up. In response, firms are forced to curtail production and to lay off workers. Prices fall, not because goods and services are plentiful, but because money is scarce.

Benign deflation is something else altogether. It is a result of improvements in productivity, that is, occasions when changes in technology or in management techniques allow greater real quantities of finished goods and services to be produced from a given quantity of land, labor, and capital. Because an increase in productivity is the same thing as a decline in unit costs of production, a productivity‐driven decline in the prices of finished goods and services needn’t involve any decline in producers’ earnings, profits, or payrolls. Lower costs are matched by correspondingly lower consumer prices, not by lower wages or incomes. Such productivity‐driven deflation is actually good news to the average breadwinner.

Benign deflation is a relatively unfamiliar concept both because modern economists devote relatively little attention to it (focusing all their discussions on inflation or on deflation of the malignant sort) and because monetary policymakers in the United States and elsewhere have prevented benign deflation from occurring throughout most of the 20th century. Thus, since World War II, the United States has witnessed frequent gains in productivity. The real (inflation‐adjusted) unit cost of production of goods and services today is approximately half of what it was in 1945. Yet the general price level, instead of being half as high as it was after the war, has increased to over nine times its former level. Instead of allowing goods’ prices to fall along with their falling real costs of production, the Fed has artificially inflated those prices by pumping large amounts of money into the economy. The last time productivity improvements were allowed to be reflected, partially and temporarily, in a fallen price level was in 1955, 44 years ago. And that was not by design but by accident.

Yet ongoing, benign deflation is not just a hypothetical possibility. Many Western nations experienced something like it between 1873 and 1896, when the gold standard placed limits on Western governments’ ability to offset the effects of productivity improvements through monetary expansion. Although national price levels declined almost continuously from 1873 to 1896, causing scholars for a time to refer to the era in question as the world’s first “Great Depression,” every other economic indicator—prices, wages, profits, industrial output, trade—shows the period to have been one of unprecedented growth and prosperity. The period had its share of genuine depressions, to be sure, but those cyclical downturns were a result of faulty financial legislation. No harm seems to have come from allowing a downward trend in prices so long as that trend reflected ongoing gains in productivity."

- from https://www.cato.org/policy-report/may/june-1999/plea-mild-deflation

 

Inflation, an increase in the supply of money beyond the increase in productivity, is ALWAYS bad.

 

Obviously, we have different views on economics, especially on the economic evils of inflation.

 

If the monetary supply is kept steady, and productivity increases, then prices will drop where those productivity increases are allowed to manifest themselves.

 

By the way, @JonC , on economics, I am an Austrian. Are you a Keynesian?

 

Yes, false. But, as I said, I am an Austrian on economics. Of course, it fits with my overall classical liberal, minarchist, libertarian political philosophy.

 

I think the main difference between us is that, if the Federal Reserve restrains inflation over 10 years to a 2% average which would result in a decrease in overall purchasing power of 21.9%, you apparently think that is okay; whereas, I think it is awful.

 

One also has to take into account what effects government interference on the economy. The money supply is not the only influence.